On December 15, 2009, the Good Government Act 2009 (Ontario) came into effect. This statute updates the law as it apply to charities that operate in Ontario and levels the playing field for charities operating in Ontario to be consistent with charities operating in other provinces in Canada.
More particularly the changes include the following:
1. The statute has repealed the Charitable Gifts Act. The Charitable Gifts Act was particularly problematic in that it restricted charities from directly or indirectly owning more than a 10% interest in a business. This rule was quite broadly worded and the language of the statute led to more questions than answers about what it meant for a charity to own a 10% interest in a business. The restriction was outdated and submissions to the Ontario Government had been made for a number of years suggesting that this statute should be repealed. This step is welcome and the government should be applauded for repealing this law.
The repeal of this statute does not mean that charities can now, without thought, set up forprofit companies and/or pursue business activities. There remain issues to be addressed under the Income Tax Act (Canada) which are relevant to this question. The repeal removes one hurdle but the others still need to be carefully considered. The statute as passed added section 14 to the Charities Accounting Act.
This new section “cures” breaches of the Charitable Gifts Act that occurred prior to the Charitable Gifts Act being repealed.
2. The Good Governance Act, 2009 amended the Charities Accounting Act as a consequence of the repeal of the Charitable Gifts Act. In particular, the Charities Accounting Act will now contain provisions which will permit the Public Guardian and Trustee of Ontario to make inquiries and require information or documents respecting entities in which an executor or trustee holds a substantial interest. The phrase “executors or trustees” includes directors of any charitable corporation as the Charities Accounting Act defines those individuals to be trustees for the purpose of its administration. These provisions will allow the Public Guardian and Trustee to ask questions about business interests held by charities. The new legislation provides that the Public Guardian and Trustee can ask for the business records of the entity, information respecting the assets and liabilities of the entity, accounts of income and expenses for the entity, financial statements of the entity and the particulars of any fees, salary or other remuneration paid to any person by the entity.
The determination of what constitutes a substantial interest is very similar to the determination used by the Income Tax Act for the excess business holdings rules. If the executor or trustee beneficially owns, controls or has direction, either directly or through another entity, over more than 20% of the voting rights, or 20% of the assets of the entity, the Public Guardian and Trustee will be permitted to inquire for the information listed in the section.
Section 4.1 of the Charities Accounting Act will provide that a court will be permitted to make certain orders in the event of application made by the Public Guardian and Trustee after reviewing the information provided. The types of orders that the court may make relate to the management, operation, ownership or control of the entity and are tied to ensuring that the entity is operating in the best interests of the charitable purpose for which the estate or trust is held. Section 4.1 also provides that anyone who contravenes the section is guilty of an offence and can be liable to a fine not exceeding $25,000.
It should be noted that this provision requires proactive requests for information to be made by the Public Guardian and Trustee. There is no annual requirement to file information about an entity respecting this information where the estate or trust has a substantial interest. Rather the Act provides the Public Guardian and Trustee with additional tools to obtain information relating to any business in which the charity or estate has a substantial interest. It would be expected that the Public Guardian and Trustee would rely on these rules in situations where it comes to its attention that there is a concern regarding the entity.
3. A second amendment to the Charities Accounting Act relates to interests in real or personal property held for a charitable purpose. Historically, the Charities Accounting Act restricted the holding of land by a charity and provided that it could only be held to the extent that it was used for the charitable purposes. That was interpreted to mean that the charity could not own excess land and lease it out. The section is now reworded and no longer provides for vesting in the Public Guardian and Trustee if there is excess property held. The proposed section provides that a charity that holds an interest in real or personal property shall use the property to benefit the charitable purposes.
As reworded, the section remains somewhat unclear. However, the government officials have stated that the amended section is intended to be relieving and that excess real or personal property that is not directly used in the charitable activity can remain in the charity and can be invested in accordance with prudent investor standards of the Trustee Act.
4. The Accumulations Act has been amended to clarify that the rules of law and statutory enactments relating to accumulations do not apply and are deemed never to have applied to charitable trusts. This resolves a somewhat technical concern relevant to longstanding charitable trusts.
New legislation, when released, often brings with it questions and comments. It is undoubtedly true that there will be some requests for clarification on the new legislation. However, as a general proposition, these changes are relieving and helpful for the charitable sector and are changes which the Ontario Bar Association, Charities and Not-for-Profit Section has been discussing with the office of the Public Guardian and Trustee for a number of years. These changes should be well-received and will permit greater flexibility to charities when structuring revenue-generating activities in the future.